How to Protect Against IP Litigation without Breaking the Bank

Your business carries insurance for its products, worker comp, property and executive liability. But what about its most valuable asset-intellectual property? It isn’t covered under your general business liability policy.

For most businesses today, IP is critical – it’s the core asset for current and future revenues and shareholder value. Getting caught in an infringement litigation case can be a financial disaster. Especially if you’re a small business or startup.

Fortunately, there is a way to way to manage the costs of IP litigation without breaking the bank. It’s called Intellectual Property Insurance.

Intellectual Property Insurance coverage protects companies for copyright, trademark or patent infringement claims. IP insurance is even available for trade secrets. One of the most important reasons for getting IP insurance is to help enforce your IP rights against an infringer, especially if they’re larger and more financially able to withstand costly litigation. If your IP winds up in litigation, IP insurance guarantees you’ll have the funding to pay for the legal expenses.

And these expenses can run into the millions. According to a study by the American Intellectual Property Law Association, the average litigation costs for a patent infringement suit range between $767,000 and $2,645,000. This is why many smaller companies wind up giving up their IP rights, or are forced to accept less than favorable licensingagreements with larger competitors.

Intellectual property insurance isn’t new. It’s been around for about 20 years, but its relatively unknown even within the insurance industry. With the increasing pace of innovation and litigation, especially in technology industry, it’s now getting more interest from businesses and investors looking to protect their IP assets from litigation.

IP insurance is available not only to large companies but small companies as well as inventors. There are various types of IP insurance including defense only, defense & indemnity, offensive, and unauthorized disclosure insurance. Some of the biggest players offering IP insurance include Wells Fargo,Chubb, CNA, AIG, Hiscox, IPISC, and Kiln.

Defense only insurance only covers the cost to defend an infringement suit, but doesn’t cover any damage awards. The annual insurance cost runs from $2,500 to $3,500, and is a good option for smaller businesses with revenues up to $25 million.

Defense and Indemnity policies cover both the litigation expenses and liability damages. Costs for this type of IP insurance runs $3,000 to $20,000 annually, and is best for larger companies with revenues exceeding $50 million.

Offensive insurance covers legal expenses for litigating against an infringer. Premiums are usually priced based on a range of litigation costs. For example, a $100,000 policy will cost about $1,000.

IP insurance can also protect you from other risks as well, including loss of business income, licensing royalty revenues, R&D benefits, IP portfolio value, trade dress design, and trade secret information.

As long as you are not aware of any known infringements, you can apply for IP insurance. Qualifying requires proof of registration or application, and a freedom to operate or non-infringement opinion from an IP attorney specifically for the products and IP you want to insure.

IP insurance also reduces litigation risk with your partners. One of the best ways is requiring your licensing partners to get IP insurance as one of the terms of the licensing agreement. Another option is requiring IP insurance as part of your agreements with your suppliers, distributors, and other vendors.

Your intellectual property is your most valuable business asset. And it needs to be protected with more than just legal registration and confidentiality. Especially if you’re operating in a highly competitive and litigation prone industry.

IP insurance helps level the playing field. It makes it financially viable for you to take legal action or defend against legal action from infringers. And it can mean the difference between keeping your business intact or having your IP rights trampled.

Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges and startup events. He’s a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.